ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations


Our condensed consolidated statements of operations for the three-month and
nine-month periods ended September 30, 2008 and 2007 are as follows:



                                                      Three Months Ended            Nine Months Ended
                                                         September 30,                September 30,
($'s in millions)                                     2008           2007           2008          2007
Net sales                                           $    55.2       $  65.3      $    159.5      $ 168.0
Cost of sales                                            43.2          54.1           130.1        139.1

Gross profit (excluding depreciation and
amortization)                                       $    12.0       $  11.2      $     29.4      $  28.9
Percent of sales                                         21.7 %        17.1 %          18.4 %       17.2 %

Selling and administrative expenses                 $     8.7       $   6.7      $     23.5      $  18.0
Percent of sales                                         15.8 %        10.3 %          14.7 %       10.7 %

Operating income                                    $     2.4       $   4.1      $      3.8      $   9.9
Percent of sales                                          4.3 %         6.3 %           2.4 %        5.9 %

Consolidated net sales for the third quarter were $55.2 million, a decrease of $10.1 million or 15.5% compared to $65.3 million for the same quarter in 2007. Consolidated net sales for the first nine months of 2008 were $159.5 million, a decrease of $8.5 million or 5.1% compared to the same period in 2007. This decline in sales for both the three month and nine month periods was due primarily to a decrease in sales for our contracting divisions partially offset by increases in sales of component parts and equipment. New acquisitions provided $11.1 million of additional revenues for the quarter and $32.2 million for the nine month period. New orders booked were $54.0 million (including acquired backlog of $3.8 million) during the third quarter of 2008 and $160.9 million (including acquired backlog of $17.8 million) for the first nine months of 2008, as compared to $35.7 million during the third quarter of 2007 and $165.2 million in the first nine months of 2007. The increase in bookings for the quarter is not necessarily indicative of an increase in demand for our products and services because types and sizes of orders vary from quarter to quarter and the flow of orders is not consistent.

Third quarter 2008 gross profit increased by $0.8 million or 7.1% to $12.0 million compared to a gross profit of $11.2 million during the same period in 2007. Gross profit for the quarter as a percentage of sales increased by 4.6 percentage points to 21.7% from 17.1% due to changes in product mix driven primarily by higher margin equipment sales. For the first nine months of 2008, gross profit increased by $0.5 million or 1.7% to $29.4 million compared to $28.9 million for the same period in 2007. Gross profit as a percentage of sales increased by 1.2 percentage points to 18.4% from 17.2% in 2007. This increase was also due to the same changes in product mix as discussed for the three month period.

Selling and administrative expenses increased by $2.0 million or 29.4% to $8.7 million during the third quarter of 2008 from $6.7 million in the same period of 2007. The increase was due primarily to additional selling and administrative expenses of $1.9 million from our latest 2008 acquisitions: Fisher Klosterman, Inc. ("FKI"), Flextor, Inc. and AVC Specialists as well as $0.2 million for three additional months of GMD Environmental (acquired November 1, 2007) expenses for the current

quarter compared to none last year. Selling and administrative expenses as a percent of sales increased by 5.5 percentage points from 10.3% in the 2007 quarter to 15.8% in the 2008 quarter. Selling and administrative expenses increased by $5.5 million or 30.6% to $23.5 million during the first nine months of 2008 from $18.0 million in the same period of 2007. This nine month increase consisted of two additional months of Effox, (acquired March 1, 2007), selling and administrative expenses in 2008 totaling $0.7 million, plus additional selling and administrative expenses of $4.6 million for the 2008 acquisitions discussed previously. Selling and administrative expenses as a percent of sales increased by 4.0 percentage points from 10.7% in the 2007 nine month period compared to 14.7% for the nine months ended September 30, 2008.

Depreciation and amortization increased from $0.4 million in the 2007 third quarter to $0.8 million during the third quarter of 2008 and in the first nine months from $1.1 million in 2007 to $2.2 million in 2008. Amortization of finite life intangibles resulting from acquisitions amounted to $376,000 and $982,000, respectively for the quarter and nine month periods.

Operating income decreased by approximately $1.7 million or 41.5% to $2.4 million in the third quarter of 2008 compared to operating income of $4.1 million during the same quarter of 2007. The impact of lower revenues offset by higher margins due to changing product mix in the third quarter, accompanied by related additions from acquisitions of selling and administrative expenses, were the primary factors for the decrease in operating income. Operating income for the first nine months of 2008 decreased by $6.1 million or 61.6% to $3.8 million compared to operating income of $9.9 million during the same period of 2007. This decrease was also due to the impact of decreased revenues and higher margins due to changing product mix in the nine month period, offset by related increases in selling and administrative expenses.

Interest expense for the three months ended September 30, 2008 increased by $0.4 million to $0.5 million compared to $0.1 million during the third quarter of 2007. This increase was due to higher outstanding loan balances on the Company's credit facility and the addition of subordinated debt used to finance acquisitions in 2008.

Interest expense for the nine months ended September 30, 2008 decreased by $0.8 million to $1.0 million compared to $1.8 million during the first nine months of 2007. The 2007 interest expense included a non-cash charge of $0.7 million to expense the remaining discount on the subordinated notes that were retired using the proceeds from our secondary stock offering in May 2007.

Federal and state income tax provision was $0.8 million during the third quarter of 2008 compared to $1.7 million during the third quarter of 2007. Federal and state income tax expense was $1.1 million for the first nine months of 2008 compared to a tax expense of $3.5 million in 2007.

The federal and state income tax expense for the three months and nine months ended September 30, 2008 was 39% of income from operations before income taxes. Our effective income tax rate is affected by certain permanent timing differences including non-deductible compensation expense related to the issuance of incentive stock options. The federal and state income tax expense for the three months ended September 30, 2007 was 44% of income from operations before income taxes.

Net income for the quarter ended September 30, 2008 was $1.2 million compared with net income of $2.2 million for the same period in 2007. Net income for the nine months ended September 30, 2008 was $1.7 million compared with a net income of $4.5 million for the same period in 2007. This decrease in net income for the quarter and for the nine months ended September 30, 2008 was the result of the previously discussed factors.

Backlog

Our backlog consists of the amount of revenues we expect from full performance of orders we have received that have not been completed for products and services we expect to substantially ship and deliver within the next 12 months. There can be no assurances that backlog will be replicated, increased or translated into higher revenues in the future.

Our backlog, as of September 30, 2008 was $86.9 million compared to $85.5 million as of December 31, 2007. The success of our business depends on a multitude of factors related to our backlog and the orders secured during the subsequent period(s). Certain contracts are highly dependent on the work of contractors and other subcontractors participating in a project, over which we have no or limited control, and their performance on such project could have an adverse effect on the profitability of our contracts. Delays resulting from these contractors and subcontractors, changes in the scope of the projects, weather, and labor availability also can have an affect on a contract's profitability.

Financial Condition, Liquidity and Capital Resources

Our principal sources of liquidity are cash flows from operations, available borrowings under our revolving credit facility and secondary equity offerings. Our principal uses of cash are operating costs, debt service, capital expenditures, working capital and other general corporate requirements.

At September 30, 2008 and December 31, 2007, cash and cash equivalents totaled $419,000 and $656,000 respectively. Generally, we do not carry significant cash and cash equivalent balances because excess amounts are used to pay down our debt.

Total bank debt at September 30, 2008 was $23.7 million and $4.7 million at December 31, 2007. The bank debt at September 30, 2008 consists of $19.3 million due on the revolving line of credit and $4.4 million due on the term note. Unused credit availability under our $30.0 million revolving line of credit at September 30, 2008 was $4.7 million. Availability is limited as determined by a borrowing base formula contained in the credit agreement.

In connection with the acquisition of Fisher-Klosterman, Inc. ("FKI") our credit facility (the "Bank Facility") was amended on February 29, 2008. The amended agreement was entered into by CECO Environmental Corp., the CECO group of companies, FKI Acquisition Corp. and Fifth Third Bank, an Ohio banking corporation. The Bank Facility, as amended, consisted of a new term loan in the amount of $5.0 million and an increased revolving line of credit of up to $30.0 million. Credit availability is determined under our revolver on an asset based calculation which is determined by multiplying qualified accounts receivable times a factor of 70% and raw material inventories by a factor of 50%. This resulting availability is then reduced by outstanding letters of credit. Terms of the agreement, which runs through January 31, 2010, include a continuation of the current borrowing rates for the credit line of prime or LIBOR plus 2% and rates for the term note of prime or LIBOR plus 2.25%. Fees paid in connection with this amendment were $72,000 and we deferred these fees and began amortizing them as an adjustment to interest expense over the remaining term of the arrangement.

In connection with the acquisitions of Flextor, Inc. and AVC Specialists ("AVC") the Bank Facility was amended again on August 1, 2008. The amended agreement was entered into by CECO Environmental Corp., the CECO group of companies, FKI and Fifth Third Bank, an Ohio banking corporation. Terms of the agreement, which runs through January 31, 2010, include a continuation of the current borrowing rates for the credit line of prime or LIBOR plus 2% and rates for the term note of prime or LIBOR plus 2.25%. At September 30, 2008, we had elected the option to use the prime rate at a rate of 5%. Fees paid in connection with this amendment were $10,000 and we deferred these fees and began amortizing them as an adjustment to interest expense over the remaining term of the arrangement.

Subsequent to the issuance of the Company's consolidated financial statements as of and for the periods ended June 30, 2008, the Company determined that the outstanding borrowings under its revolving line of credit should be classified as current in accordance with FASB Emerging Issues Task Force 95-22, "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement" ("EITF 95-22"). Accordingly, the accompanying balance sheet as of September 30, 2008 reflects all such borrowings ($18.3 million) as current obligations. Additionally, the accompanying December 31, 2007 balance sheet also presents such borrowings ($4.4 million) as a current obligation although such borrowings had previously been reflected as long-term obligations in the Company's Form 10-K filed on March 17, 2008. Similarly, $16.4 million and $14.1. million of such borrowings should have been reflected as additional current obligations in the Company's Form 10-Qs for the periods ended March 31, 2008, filed on May 12, 2008, and June 30, 2008, filed on August 11, 2008, respectively.

These reclassifications have no impact on debt covenant compliance, net income, cash flows or net shareholders' equity as of and for the periods indicated above. The Company has started discussions with its lender with the intent to amend the Bank Facility in such a way that outstanding revolving line of credit borrowings will not be subject to EITF 95-22 and, if so amended, the requirement to classify this long-term debt as current may no longer apply. The Company can make no assurances that it will ultimately enter into such an amendment with its lender.

Additionally, on July 31, 2008, the Company issued a Subordinated Convertible Promissory Note (the "Note") in the amount of Canadian $5,000,000 (the "Subordinated Debt") to Phillip DeZwirek, the Chairman and CEO of the Company. On August 14, 2008, the Company refinanced the Note. The Company repaid all outstanding principal and unpaid interest under the Note and cancelled the Note. On August 14, 2008, the Company issued a new Subordinated Convertible Promissory Note (the "Subdebt Note") in the amount of Canadian $5,000,000 (the "Subordinated Debt") to Icarus Investment Corp., a Canadian company which is controlled by Phillip DeZwirek and Jason DeZwirek, the Secretary and a Director of the Company. The Canadian $5,000,000 proceeds received by the Company were used to repay the Note. The Subdebt Note provides for interest to accrue at the rate of 10% per annum in 2008, 11% per annum in 2009, and 12% per annum commencing January 1, 2010 until paid. Since it is our intention to pay off the Note as quickly as possible, we are accruing interest at the rate of 10% per annum. Interest payments are payable semi-annually subject to the Subordination Agreement with Fifth Third Bank. The holder of the Note may convert at any time the outstanding principal and accrued and unpaid interest there under into common stock of the Company at a per share price of $4.75, a price greater than the closing consolidated bid price immediately preceding the issuance of the Note. The Note's maturity date is the earlier of July 31, 2010 or six (6) months after repayment of the Bank Facility. The Note also matures in the event of a merger or reorganization of the Company that results in a change of control, upon the sale of 50% of the assets of the Company, or any sale of any division of the Company in excess of $5 million. To the extent that the Company completes an equity financing in excess of $10 million, 25% of the amounts in excess of the $10 million are required to be used to repay the Subordinated Debt, provided that the Company is not in default under the Bank Facility.

Overview of Cash Flows and Liquidity



                                                       For the nine months
                                                       ended September 30,
         ($'s in thousands)                             2008           2007
         Net cash provided by operating activities   $     1,070     $  5,010
         Net cash used in investing activities           (25,124 )     (8,142 )
         Net cash provided by financing activities        23,817        3,419

         Net (decrease) increase                     $      (237 )   $    287

Cash provided by operating activities was $1.1 million in 2008 compared to cash provided in 2007 of $5.0 million. Cash provided by operating activities for the first nine months of 2008 was the result of net income of $1.7 million plus non-cash charges for depreciation and amortization of $2.2 million, non cash charges for stock based compensation of $0.8 million, a decrease in accounts receivable of $14.3 million and a decrease in prepaid expenses of $0.9 million offset by decreases in accounts

payable and accrued expenses of $14.4 million, an increase in costs and estimated earnings in excess of billings of $2.6 million, an increase in inventory of $1.0 million and an increase in deferred charges and other assets of $0.6 million. Other changes in working capital items used cash of $0.2 million. Our net investment in working capital (excluding cash and cash equivalents and current portion of debt) at September 30, 2008 and December 31, 2007 was $25.7 million and $20.8 million, respectively.

Net cash used in investing activities related to capital expenditures for property and equipment of $1.6 million compared with $1.2 million for the same period in 2007 and new business acquisitions of $23.5 million for the first nine months of 2008 compared with $7.0 for 2007. We are managing our capital expenditure spending in light of the current level of sales. Additionally, capital expenditures may be incurred depending on the ultimate disposition of our Cincinnati property.

Financing activities provided cash of $23.8 million during the first nine months of 2008 compared with cash provided of $3.4 million during the same period of 2007. The 2008 cash flows consisted primarily of additional borrowing on the credit facility of $14.6 million, new term debt of $5.0 million and new subordinated debt of $4.8 million offset by term debt repayments of $600,000.

Forward-Looking Statements

This Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects or future results of operations or financial position made in this Form 10-Q are forward-looking. We use words such as "believe," "expect," "anticipate," "intends," "estimate," "forecast," "project," "should," and similar expressions to identify forward-looking statements. Forward-looking statements are based on management's current expectations of our near-term results, based on current information available pertaining to us and are inherently uncertain. We caution investors that any forward-looking statements made by or on our behalf are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other risk factors include, but are not limited to: our dependence on fixed price contracts and the risks associated therewith, including actual costs exceeding our estimates and our method of accounting for contract revenue; our history of losses and possibility of further losses; fluctuations in operating results from period to period due to seasonality of our business; the effect of growth on our infrastructure, resources, and existing sales; our ability to expand our operations in both new and existing markets; the potential for contract delay or cancellation; the potential for fluctuations in prices for manufactured components and raw materials; our ability to raise capital and the availability of capital resources; our ability to fully utilize and retain executives; the impact of federal, state, or local government regulations; labor shortages or increases in labor costs; economic and political conditions generally; and the effect of competition in the air pollution control and industrial ventilation industry.

We caution investors that other factors might, in the future, prove to be important in affecting our results of operations. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Investors are further cautioned not to place undue reliance on such forward-looking statements as they speak only to our views as of the date the statement is made. We undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise.